For Profit Education Jumps From the Frying Pan to the Fire.
Courtesy of madhedgefundtrader
This is turning into a major home run for those who took my advice the sell the sector on June 2 (See “Hedge Funds Target for Profit Education” by clicking here at http://www.madhedgefundtrader.com/june_2__2010.html , and my follow up here at http://www.madhedgefundtrader.com/august-5-2010.html ).
I knew I was on to a great trade here because of the torrent of emails I received from these schools threatening me major leagal action, adverse publicity, or worse. That’s always a good sign for a new short play.
For those who haven’t been following this drama, for-profit schools have made a killing from naïve, aspiring students taking out $5 billion in Pell grants and $20 billion in federal subsidized loans. On graduation they end up with a diploma useless in this job market and a staggering load of debt.
A few weeks after my initial report, the General Accounting Office reported the results of an undercover investigation showing widespread fraud and abuse in the sector, with some financial aid officers advising students to lie on their applications.
The chickens have come home to roost. Since my call, lead stock Apollo Group (APOL) of University of Phoenix fame has fallen 27%, DeVry (DV) 33%, and Capella Education (CPLA) 35%. Those who cast a wider net caught Corinthian Colleges (COCO) down a spectacular 62% and Strayer Education down 30%.
The management of Strayer said they were shocked, shocked that repayment rates were so low, as Claude Raines might have said in the classic film, Casablanca.
I’ve has some friends get their eyes ripped out by these guys through running up $50,000 in debt to obtain useless degrees, so this couldn’t be happening to a nicer bunch of people. Although these stocks have already gone down a lot, there may be more to go. It is safe to say that the Obama administration hates these predatory schools, and that criminal prosecutions are certain to follow.
On the other hand, if you prefer to sleep at night, you might want to book some profits now.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
Email This Post
Facebook
Twitter
LinkedIn
del.icio.us
Digg